10 – Rationalising and streamlining other programmes and spending

10.1 Industry Assistance

Successive Commonwealth Governments have provided a wide range of industry assistance programmes with differing goals, transmission mechanisms and effective levels of assistance. Assistance is often provided on an ad hoc and inconsistent basis, rather than based on consistent principles.

Background

Australian industry structure

As shown in Chart 10.1.1 below, in 2011-12 services represented the largest sector in Australia (77.4 per cent of industry value added). This was followed by mining (11.3 per cent), manufacturing (8.6 per cent) and agriculture, forestry and fishing (2.7 per cent) (Department of Industry, Innovation, Science, Research and Tertiary Education, 2012).

Chart 10.1.1: Australian industry structure, 2011-12 Per cent of industry value added

This chart shows the structure of Australian industry, in terms of per cent of industry value added.

Source: Department of Industry, Innovation, Science, Research and Tertiary Education, 2012.

Assistance to industry

Assistance to industry by the Commonwealth Government amounted to $17.3 billion in 2011-12. This comprised $7.9 billion in gross tariff output assistance, $5.1 billion of budgetary outlays and $4.3 billion in tax concessions. After allowing for the cost to business of tariffs on imported inputs ($6.8 billion), estimated net assistance was $10.5 billion in 2011-12 (Productivity Commission, 2013a).

In 2011-12 the manufacturing industry received the highest level ($7.4 billion) of combined assistance, which included tariffs, budget outlays and tax concessions, as shown in Chart 10.1.2 below. This was followed by primary production ($1.6 billion) and mining ($0.5 billion) (Productivity Commission, 2013a).

Chart 10.1.2: Combined assistance by industry grouping, 2011-12

This chart shows combined assistance by industry grouping.

Source: Productivity Commission, 2013a.

Considering only budget outlays, the greatest level of assistance in 2011-12 was provided to the services sector ($2.1 billion, mainly electricity, gas, water and waste services), then to manufacturing ($1.4 billion), followed by primary production ($0.9 billion) (Chart 10.1.3 refers).

Chart 10.1.3: Budgetary outlay assistance by industry grouping, 2011-12

This chart shows budgetary assistance by industry grouping.

Source: Productivity Commission, 2013a.

Current structure of industry assistance

Commonwealth industry assistance is currently provided on an ad hoc basis. There is a range of programmes across multiple portfolios, with differing goals, transmission mechanisms and levels of effective assistance.

Some programmes provide assistance to specific firms (such as a contribution to Acacia Park Industrial Estate Armidale), some to specific industries (such as the Automotive Transformation Scheme) and some to Australian industry more broadly (such as the research and development taxation incentive).

The majority of Commonwealth budgetary assistance in 2011-12 was directed to specific industries (31 per cent), followed by research and development measures (28 per cent) and small business programmes (22 per cent) (Productivity Commission, 2013a), as shown in Chart 10.1.4 below.

Chart 10.1.4: Budgetary assistance by category, 2011-12

This chart shows budgetary assistance by category.

Source: Productivity Commission, 2013a.

Rationale for government intervention

The Commission considers that Government should act in the public interest and only intervene in markets where market solutions clearly fail to produce the best outcome.

It should be recognised that there are costs to the economy associated with raising taxes to provide industry assistance. Taxes can reduce incentives to work or invest, coming at a cost to the economy above the value of the tax raised. There are also administration costs involved in collecting taxes. Estimates produced for the Henry Tax Review indicated that for every additional dollar raised by Commonwealth taxes, social welfare falls by between 10 and 40 cents (Australian Government, 2010).

Given the range of calls on the Commonwealth Budget and the costs involved in raising taxes, industry assistance needs to be carefully considered alongside other potential spending options to ensure the greatest benefit to the community.

Trends

Over time, the amount of industry assistance has remained broadly unchanged in real terms. Decreases in tariff support (with reductions in Australian tariff rates) have largely been offset by increases in other assistance, such as budgetary outlays and an increasing tendency to investigate other non-tariff protection measures (see Charts 10.1.5 and 10.1.6).

Chart 10.1.5: Net tariff assistance

This chart shows a decrease in net tariff assistance over time, in real terms.

Source: Productivity Commission, 2013a.

Chart 10.1.6: Budgetary outlay assistance

This chart shows an increase in budgetary outlay assistance over time, in real terms.

Source: Productivity Commission, 2013a.

Issues with the provision of industry assistance

The shortcomings of governments ‘picking winners’ are well known. Taxpayer support undermines the incentives for firms to innovate, reduce costs and improve the quality of goods or services to better meet consumer demands.

The possibility of industry assistance encourages companies to turn their attention to lobbying government to obtain preferential treatment, whether that be in the form of grants, loan guarantees or regulatory changes to protect them from competition. Lobbying becomes the focus for firms, rather than trying to run a successful business, improve shareholder value and provide goods and services that customers value.

In most cases, the benefits of industry assistance will accrue entirely or very largely to the firm or industry supported. Assistance to particular firms or industries subsidises them to continue in the market place, over-expanding one sector over others and distorting labour market and investment decisions. Once provided, assistance is difficult to withdraw. For example, Australia has been providing automotive industry assistance since 1907 (Productivity Commission, 2002).

The Productivity Commission (PC) recently estimated that the equivalent of around $30 billion (2011-12 dollars) was provided to the automotive industry between 1997 and 2012 in the form of tariffs and various subsidies. As well as direct budgetary assistance and tariff protection, the automotive industry benefits from government preferential purchasing policies and restrictions on the importation of second-hand vehicles (Productivity Commission, 2013b).

Firms should adjust to the changing economic environment, such as cost movements and changing consumer tastes. The government’s role is to ensure appropriate policy settings at the economy-wide level that facilitate and encourage productivity and economic growth, rather than favouring certain activities over others. 

Governments have an important role to play in setting the right environment for market competition to flourish. This includes creating a stable macroeconomic environment and pursuing microeconomic reform by eliminating unnecessary regulation, promoting more flexible labour laws and an efficient and competitive tax system.

A reduction of budgetary assistance to industry – which in most cases benefits a small number of firms – should be accompanied by a renewed commitment to broader reforms which will improve the operating environment for all businesses.

The Commission has identified a number of programmes where there is no genuine market failure and where the benefits accrue entirely or largely to the firm or industry supported. These include: the Automotive Transformation Scheme, the Steel Transformation Plan, ethanol production subsidies, the Rural Financial Counselling Service, Enterprise Solutions, the Clean Energy Finance Corporation and specific funding to GM Holden and the Cadbury factory in Tasmania.

While there will be cases where government assistance may mean the difference between a business continuing or not, these are decisions that should be left to commercial discipline and not based on a firm’s ability to receive government assistance.

Supporting uncompetitive firms has broader economic impacts as it draws skills and investment away from more productive uses, reducing overall productivity and hence living standards.

Other programmes which should be abolished under this category include schemes which currently fund services that are, or could be, readily provided by the private sector without government intervention, including Enterprise Connect, Commercialisation Australia and Small Business Advisory Services, some of which overlap with services provided by the states.

The Commonwealth also funds a number of bodies and programmes intended to assist Australian exporters. These include Austrade, the Export Finance and Insurance Corporation (EFIC), the Export Market Development Grants Scheme, the Asian Business Engagement Plan Grants and support for the tourism sector.

Virtually all of Australia’s exports by volume and value take place without government assistance. The Productivity Commission report on Australia’s Export Credit Arrangements (Productivity Commission, 2012) observed that while EFIC was supposed to operate in a market gap, most of its activities were directed at supporting larger businesses. It noted that in recent years EFIC has earned most of its income through the investment of surplus funds and its capital and reserves, not the provision of financial services, and the return on equity was low compared to commercial financial institutions.

The PC concluded that there was no convincing evidence of systemic failures in financial markets that impede access to finance for large firms, or for proponents of resource-related projects and their suppliers.

The PC recommended changes to EFIC’s mandate to focus its support on small businesses which are more likely to face market failures. Amendments to the Export Finance and Insurance Corporation Act 1991 to change EFIC’s mandate were in a bill before Parliament when the election was called (albeit not going as far as the PC had recommended).

The Commission considers that EFIC should be abolished as there is little evidence of genuine market failure in the provision of export finance.

In 2011-12 Austrade was provided with funding of approximately $335 million. Austrade’s annual report indicates that in that year, its assistance led to 205 export sales ‘either under negotiation or concluded’. This does not appear to represent value for money with relatively high costs for the number of business opportunities generated. The return on investment is poor.

The Export Market Development Grants Scheme, administered by Austrade, reimburses small businesses for up to half of their international marketing costs, including for consultants, marketing visits and promotional material. The previous National Commission of Audit (Australian Government, 1996) argued that it should be abolished as the benefits of success are able to be captured by the business itself without other benefits to the community.

There is unlikely to be a significant spillover effect from the Export Market Development Grants Scheme, as little economy-wide learning is promoted. Changes in the international environment mean that businesses have more opportunities for international marketing and therefore less need for government assistance.

Similarly, the Asian Business Engagement Plan provides funding to assist member-based business organisations to harness commercial opportunities in Asia for small to medium sized Australian businesses, with the benefits then accruing to business members of the organisations. There are minimal broader spillover effects outside of these business members.

Economic modelling for the 2008 review of EMDG (Department of Foreign Affairs and Trade, 2008) suggested that the scheme has a small positive net benefit (a benefit to cost ratio of 1.04:1), but argued that this could be much larger accounting for spillover effects. The PC rejected this argument, observing that the EMDG promoted little economy-wide learning and hence the spillover effects would be small (Productivity Commission, 2009).

Approximately $185 million of Commonwealth funding is directed towards tourism initiatives and management. Most of this funding is for Tourism Australia, although other programmes now administered by Austrade include ‘Tourism Quality’ grants and the Tourism Industry Regional Development Fund. The Department of Foreign Affairs and Trade is responsible for tourism policy.

Nearly two-thirds of Tourism Australia’s budget is directed to advertising and other promotional activities. While tourism is one of Australia’s main exports, most of the benefits of tourism accrue to the tourism operators. There is no clear reason why significant funding should be provided to tourism above other Australian export industries.

The States already provide a marketing budget for tourism. However, it is arguable that marketing Australia as a destination for international tourists should be undertaken at a Commonwealth level rather than on a State-by-State level. The Commission proposes that grant funding for the tourism industry be ceased and funding for Tourism Australia be reduced by 50 per cent to focus on international marketing, with the function incorporated into a commercial arm of the Department of Foreign Affairs and Trade.

The Commission has identified other industry assistance programmes which have a mix of public and private benefits. These programmes should continue but with reduced levels of Commonwealth funding. They include Screen Australia where funding should be halved and focussed on areas of Australian content, including those with a historical perspective that might not otherwise be funded. Bringing together the Australia Council, Australian Business Arts Foundation Ltd, Screen Australia and the Bundanon Trust into a single arts council would also reduce administrative costs and support closer collaboration within the arts community. It will provide improved capacity for grant and procurement processes to be centrally and professionally managed.

Similarly, the Commission considers funding for the National Landcare Programme should be halved and better aligned to the goals of the Environment Protection and Biodiversity Conservation Act 1999.

Commonwealth funding is also provided to meet the public benefit of recovering environmental water for the Murray-Darling Basin. Water recovery is funded through a range of different measures including buying water entitlements and funding private infrastructure that will return water to the river system. The Commission considers that the Government should focus on maximising public benefits and achieving value for money in its water recovery, not on providing industry assistance. This means moving away from infrastructure funding, which is significantly more expensive and which provides substantial private benefits to landholders.

There are also a number of research and development programmes that assist industry. Research and development is discussed in Section 8.2 of the Phase One Report.

The Commonwealth should also refrain from providing industry assistance in areas where there is already a State and Territory presence, or where the States are clearly responsible for the function. Consequently, the Commission considers that the Bass Strait Passenger Vehicle Equalisation Scheme and Tasmanian Freight Equalisation Scheme should be abolished. This mirrors the PC’s conclusions in this area.

The Australian Government should put less emphasis on freight subsidy schemes in favour of policy reforms which have national and Tasmanian benefits (such as coastal shipping reform) and those which directly enhance the competitiveness and productivity of the Tasmanian economy (Productivity Commission, 2014).

Of course, the abolition of cabotage should reduce coastal freight rates for all States.

While the majority of current industry assistance is provided through budgetary measures (payments and tax concessions), some is also provided through trade protection, such as tariffs and other non-tariff forms of protection. Australia was a world-leader in reducing tariff protection in the 1980s and 1990s, reflecting the fact that while tariffs provided benefits to particular producers they imposed even greater costs on Australian consumers in the form of artificially-inflated prices. However, with the reduction in tariffs there has been some tendency to move, instead, to other forms of non-tariff protection, such as anti-dumping protection.

Australia’s anti-dumping system provides protection for Australian industries which have been materially injured by overseas firms exporting goods to Australia at below the domestic price of the goods in the country of export.

There is nothing illegal about pricing goods for export cheaper than domestic goods. In fact, the Australian Trade Commission (2014) instructs Australian exporters that:

Calculating a separate price for each of your export markets is important because:

  • For products, distributor, wholesale and retail mark-ups are often different in each market and industry, which will affect the final price of your products. Remember to include questions about these mark-up costs when you are doing your initial market research.
  • Your competitors and the way they price their products or services will probably be different in different markets, and you have to take this into account when setting your prices.
  • The price that end users are willing to pay for your products or services will not be the same in all markets around the world. 

The PC has noted that in applying dumping fees to protect Australian producers from cheap imports, Australia’s current system ‘benefits a small number of import competing firms, but imposes greater costs on the rest of the economy’ (Productivity Commission, 2010). Downstream producers which use the imported goods as an input now have higher costs and consumers also face increased prices. For example, imposing a dumping fee on imported building products will help domestic producers who make that building product, but will also increase the cost of building new homes.

Former Productivity Commission Chairman, Gary Banks, explained that:

Selling goods abroad at prices below those at home is normal business practice in various circumstances and one adopted by many Australian firms. Imposing (often sizeable) penalty duties on such imports protects less competitive firms at the expense not only of consumers, but also other local user industries (as the auto assemblers are finding right now in relation to their steel inputs). The rules allowing such 'administered protection' should be tightened in the true spirit of the WTO accord, not made more permissive (Banks, 2012).

Potential areas for reform

It is important to have a clear, shared, understanding of the areas where governments should and should not intervene to provide industry assistance.

Although Commonwealth industry assistance has reduced over time, there are specific opportunities to remove or streamline industry assistance programmes where there is no role for government. This would also improve productivity and economic growth and reduce the cost to taxpayers. The Commission considers that funds devoted to assisting uncompetitive industries would be better spent elsewhere, or not spent at all.

The Commission considers that:

  • industry assistance should be well designed and targeted and be limited to areas of genuine market failure where the benefits of government intervention clearly outweigh the costs. In particular, the Government should focus industry assistance on providing targeted support for research and development, structural adjustment assistance to workers and other measures to address clear externalities;
  • the activity should be undertaken by the most appropriate level of Australian government to avoid duplication; and
  • when providing industry assistance, consideration should be given as to whether part or all of the cost of a government activity should be recouped directly from the beneficiaries of that activity.

In addition, government has a role in establishing the environment for businesses to flourish. The Government should continue to reduce the cost of doing business in Australia in such areas as labour market reform, deregulation, energy policy and provision of economic infrastructure. Such action will lift the competitiveness and productivity of all businesses.

Structural adjustment assistance

There is a role for government in providing structural adjustment assistance in some situations, as labour markets do not adjust seamlessly.

For example, there may a role for government to help workers adjust to a major dislocation caused by the closure or downsizing of a major employer in a region.

If structural adjustment programmes are provided, they should be:

  • facilitating of adjustment, not preventing or obstructing it;
  • as non-distortionary as possible;
  • equitable with respect to firms, both within the industry and firms in similar circumstances in other industries;
  • simple and predictable for claimants involving minimal bureaucratic discretion;
  • targeted at those who need and can benefit from the assistance;
  • transparent;
  • limited in regard to time and expenditure; and
  • simple to administer.

Most closures and restructuring of activities across the economy will not require structural adjustment assistance in addition to the services already provided through Job Services Australia.

To facilitate change in the economy, structural adjustment assistance should be focussed on moving displaced workers back into the labour market, not on assisting individual firms or industries.

Targeted support for research and development

There is a role for government to encourage research and development where the benefits outweigh the costs and there are likely to be significant spillovers for the broader community.

Even in the presence of spillovers, governments should avoid funding research where industry would have reason to fund it in the absence of government support. Government funding for research and development is only justified where it results in additional research that is of net benefit to the community as a whole.

Anti-dumping

To act in the public interest, dumping protection should not be implemented unless the benefits to affected producers clearly exceed the costs to other industries and to Australian consumers. Introducing an improved public interest test would be a practical way of assessing the benefits and costs of dumping protection.

The Commission considers that a public interest test should be introduced, so that anti-dumping assistance is only provided where the benefits to affected producers clearly exceed the broader costs (Productivity Commission, 2010). A reverse onus of proof test should not be part of the anti‑dumping arrangements.

Proposed treatment of industry assistance programmes

The Commission recommends a range of industry assistance programmes be abolished, phased out or rationalised. Further details are provided in Tables 10.1.1 and 10.1.2.

Consideration should also be given to either abolishing or merging all industry assistance programmes with a Budget impact of less than $5 million per year. This would result in a reduction of departmental costs.

The Commission has only considered those industry assistance programmes which are expenses in the Commonwealth Budget. It is important that the same exercise be undertaken for tax expenditures as part of the forthcoming White Paper on Tax Reform.

The Commission notes that it may take a number of years to achieve savings as the Commonwealth has existing contractual arrangements in relation to many of these programmes.

Table 10.1.1: Outline of recommended changes to industry assistance programmes

Programme name

Abolish

Merge

Reduce Funding

Other

Specific firm or industry assistance
Automotive Transformation Scheme yes      
Ethanol production subsidies yes      
Rural Financial Counselling Service yes      
Enterprise Solutions Program yes      
GM Holden grant yes      
Cadbury Factory funding yes      
Steel Transformation Plan yes      
Clean Energy Finance Corporation yes      
Service available from private sector
Small Business Advisory Services Program yes      
Enterprise Connect yes      
Commercialisation Australia yes      
Mix of public and private benefits
Screen Australia   yes yes  
National Landcare Programme     yes  
Murray-Darling Basin water recovery       yes
State responsibilities
Bass Strait Passenger Vehicle Equalisation yes      
Tasmanian Freight Equalisation Scheme yes      
Assistance to exporters
Austrade   yes yes  
EFIC yes      
Export Market Development Grants Scheme yes      
Asian Business Engagement Plan Grants yes      
Tourism Australia     yes  
'Tourism Quality' grants yes      
Total programmes: 22 17 2 4 1

Source: National Commission of Audit.

Table 10.1.2: Further detail regarding recommended changes to industry assistance programmes

Programme name

Programme description

Recommendation

Rationale

Specific firm or industry assistance
Automotive Transformation Scheme (ATS) ATS provides funding for the production of passenger vehicles in Australia, as well as funding for investment and R&D. Abolish The automotive transformation scheme provides a production subsidy for cars made in Australia. As found by the Productivity Commission (2002), automotive manufacturing relies on production scale and labour costs. All vehicle manufacturers in Australia are producing well below the 200,000 to 300,000 vehicles needed annually for an assembly plant to be cost competitive. The ATS subsidises a sector which is fundamentally uneconomic and has been steadily losing local and global market share. Ceasing automotive assistance, with targeted structural adjustment assistance, would benefit the overall community.
Ethanol production subsidies ATS provides funding for the production of passenger vehicles in Australia, as well as funding for investment and R&D. Abolish The grant subsidises the production of fuel ethanol in Australia. It provides a benefit to a small number of Australian producers, skewing commercial decision making towards ethanol production, and distorting Australian markets for fuel and feedstock products. As the subsidy is not available for imported ethanol, it also provides protection from foreign competition and increases the consumer price of fuel ethanol blends. The environmental benefits are contestable, with the Productivity Commission (2011) finding the grants resulted in only marginal carbon dioxide abatement at a cost of over $500 per tonne of abatement.
Rural Financial Counselling Service Financial counsellors provide advice to Australian farmers in financial difficulties. Abolish Financial planning and counselling services, including those focused on farm businesses, can be purchased from the private sector without government subsidy or provision.
Enterprise Solutions Program Under this programme, Australian companies are asked to identify solutions to technological problems identified by Commonwealth and State governments. Funding may be provided for feasibility studies and proof of concept. Funding is not provided for governments to actually procure the final product. Abolish Commonwealth and State government departments already have established procurement processes, and budgets, in place for acquiring new products and intellectual property. There is no clear additional public benefit arising from this intermediate step in the procurement process. Benefits predominantly go to the private sector firms receiving funding for feasibility and proof of concept, as these firms retain full ownership of any resulting intellectual property.
GM Holden grant A $215 million grant to GM Holden Limited, from 2013-14 to 2016-17. GM Holden committed more than $1 billion over the next 10 years to keep building cars in Australia, in return for $275 million in state and federal funding. One-off grant GM Holden has now announced that they are closing production in Australia. Government assistance to encourage GM Holden's continued presence in the country should be removed from the forward estimates.
Cadbury Factory funding The Government has committed $16 million towards a $66 million upgrade of the Cadbury chocolate factory and tourist facilities in Claremont. Abolish There is no genuine market failure. Benefits will accrue to Cadbury or the local tourism industry.
Steel Transformation Plan A $300 million Steel Transformation Plan aims to assist the industry to become more efficient and economically sustainable in a low carbon economy. Abolish The Steel Transformation Plan is to be abolished as part of the repeal of the carbon tax and the Clean Energy Package. The Commission supports the abolishment of the Steel Transformation Plan, as there is no genuine market failure.
Clean Energy Finance Corporation The CEFC is a $10 billion legislated fund dedicated to investing Commonwealth funds in clean energy. Abolish While private financiers may not be attracted to investing in some renewable energy or clean energy projects compared to other opportunities, there is no systemic market failure in securing finance. The CEFC risks ‘crowding out’ private sector investment and accepting a lower rate of return for a given level of risk than would be acceptable to a private investor risking their own, rather than taxpayer, funds. While the Commonwealth has a low cost of borrowing by virtue of its ability to source debt and raise tax, this does not reduce the risks taken on by taxpayers.
Service available from private sector
Small Business Advisory Services Program (SBAS)

Small businesses can access a range of advisory services, such as:

  • business management skills
  • financial management skills
  • business planning
  • mentoring for business
  • general business advice

Abolish SBAS is delivered on the ground through a network of existing not-for-profit business advisory services, established by State or local governments, or by the local community. Commonwealth funding through SBAS allows these organisations to delivery small business advisory services at a lower cost to customers. Small business advice can also be purchased from private sector providers, such as accountants, lawyers and business consultants, without government funding. There is no genuine market failure, with the small businesses themselves reaping any increased returns.
Enterprise Connect Enterprise Connect offers comprehensive, confidential advice and support to eligible Australian small and medium businesses. Services include Business Reviews delivered at no charge to businesses, grant assistance to implement recommendations flowing from the Business Review, and a range of tailored innovation services to meet individual business needs. Abolish Business review services can already be purchased from private sector businesses such as management consultants. There are no clear public benefits arising from the funding, with the small businesses themselves reaping any increased returns.
Commercialisation Australia

Commercialisation Australia offers funding and resources to accelerate the business building process for Australian companies, entrepreneurs, researchers and inventors. Funding options include:

  • Skills and Knowledge: Up to $50,000 to access specialist advice and services
  • Experienced Executives: Up to $350,000 to engage a CEO or other senior executive
  • Proof of Concept: $50,000 to $250,000 to prove the commercial viability of new IP
  • Early Stage Commercialisation: $50,000 to $2 million to take a new product, service or process to market.

Abolish Commercialisation Australia assists Australian businesses through the process of turning new ideas into commercial outcomes. The intellectual property, and any profits arising from these new ideas remains with the business, and there are no clear public benefits arising. The process of commercialising new products can often be a difficult one. However, skills and finance can be acquired from the private sector, and there is no clear reason for the Commonwealth to provide this assistance in competition with private sector providers.
Mix of public and private benefits
Screen Australia Screen Australia offers funds for the development, production and marketing of Australian screen content, as well as for the development of Australian talent and screen production businesses. Halve funding. Merge Screen Australia with Australia Council, Creative Partnerships Australia (CPA) and Bundanoon Trust to reduce administrative costs. There are some positive cultural externalities from Australians having access to local content. Existing policy initiatives include the Australian content requirement for Australian commercial television and funding for the public broadcasters, ABC and SBS. There is also a 'significant Australian content' requirement for the current film tax incentive. There is scope to reduce funding for Screen Australia, with residual funding to be focussed on Australian content, including with an historical perspective, which may not otherwise be funded.
National Landcare Programme (formerly Caring for Our Country) Supports individuals, farmers, regional natural resource management organisations, community, Coastcare, Indigenous and Landcare groups to protect the natural environment and build resilience in our ecosystems and farmlands. It is an ongoing initiative that offers multi-year funding. 
$2 billion in funding from 2013-14 to 2017-18.
Halve funding and better align to the goals of the EPBC Act (e.g. continue funding which supports world heritage areas, and dealing with invasive species), focusing on activities with the greatest positive environmental externalities that landholders would not otherwise have an incentive to conduct themselves. While there are public benefits from the National Landcare Programme, it also provides funding for activities that deliver substantial private benefits and that landholders would have an incentive to undertake without public funding. There is also overlap between Commonwealth and State responsibilities and activity. Funding should be reduced and redirected to the activities with the greatest environmental externalities that do not provide sufficient private benefits for landholders to fund themselves.
Murray-Darling Basin water recovery The Murray-Darling Basin Plan includes a Sustainable Diversion Limit (SDL) of the maximum amount of water that can be taken for consumptive use, which comes into effect in 2019. As current consumptive use is above this limit, the Government has put in place a range of measures to recover sufficient water to 'bridge the gap', including water entitlement purchases, infrastructure upgrades and environmental works. Following implementation of existing programmes under the Murray-Darling Basin Plan, the Commonwealth should not fund any further water infrastructure activities. To the extent any further water recovery is required, entitlement buybacks should be used. The different measures used to recover environmental water for the Murray-Darling Basin have a range of different costs per unit of water recovered. Some of the measures, particularly infrastructure, also provide substantial private benefits to landholders that they would have incentives to fund themselves. While the return of water from these measures provides public benefits, these can be obtained at a lower per-unit cost via water entitlement buybacks. To the extent that any further water recovery is provided, these should be obtained via on-market buybacks.
State responsibilities
Bass Strait Passenger Vehicle Equalisation Scheme Assists with the cost associated with the transportation of passenger vehicles interstate across Bass Strait. Abolish The benefits of this scheme accrue almost entirely to Tasmania. Issues relating to the efficiency of Tasmania’s shipping and freight are primarily the responsibility of the Tasmanian Government.
Tasmanian Freight Equalisation Scheme The Tasmanian Freight Equalisation Scheme (TFES) assists shippers to transport goods by sea, between Tasmania and the Australian mainland. Abolish The benefits of this scheme accrue almost entirely to Tasmania. Issues relating to the efficiency of Tasmania’s shipping and freight are primarily the responsibility of the Tasmanian Government.
Assistance to exporters
Austrade Through a global network of offices, Austrade assists Australian companies to grow their international business, attract foreign direct investment into Australia and promotes Australia’s education sector internationally. Austrade administers the Export Market Development Grants (EMDG) scheme and the TradeStart programme. Significantly reduce the activities of Austrade and incorporate any residual functions into a commercial arm of DFAT The Commonwealth assistance provided through Austrade leads to a relatively small number of export sales. For example, in 2011-12, Austrade (2012) reported that 205 export sales were ‘either under negotiation or concluded’. Only a small number of companies benefit from the assistance.
EFIC EFIC provides assistance to exporters by providing tailored financial solutions. Abolish. The existing loan book of EFIC should be transferred to the Department of Foreign Affairs and Trade to investigate options to on-sell or wind up the loans Virtually all of Australia’s exports by volume and value take place without EFIC’s assistance. Support provided by EFIC has mostly been directed at a small number of large businesses, including major resource projects. There is no convincing evidence of systemic failures in financial markets that impede their access to finance. In recent years EFIC has earned most of its income through the investment of surplus funds and its capital and reserves, not the provision of financial services.
Export Market Development Grants (EMDG) scheme Reimburses up to 50 per cent of eligible export promotion expenses above $10,000 Abolish There is unlikely to be a significant spillover effect from the EMDG scheme, as little economy-wide learning is promoted. Changes in the international environment mean that businesses have more experience and more opportunities for international marketing and therefore less need for government assistance. Austrade’s 2011-12 Annual Report stated that 38.7 per cent of EMDG recipients during the previous financial year employed four people or less.
The Asian Business Engagement (ABE) Plan This programme has been established to assist member-based business organisations to harness commercial opportunities in Asia for small to medium sized Australian businesses. The objective of the ABE Plan is to facilitate new initiatives to improve Australian business links into Asia through Australian business organisations based in Australia or in Asia. Abolish Businesses already have strong commercial incentives to pursue business opportunities and improve business links with Asia, without Government funding. Funding provides mainly private benefits to the companies concerned.
Tourism Australia Tourism Australia markets Australia as a tourism destination, both internationally and domestically. Cease grant funding for the tourism industry, with funding for Tourism Australia reduced by 50 per cent, to focus on international marketing, with the function incorporated into a commercial arm of the Department of Foreign Affairs and Trade. Nearly two-thirds of Tourism Australia’s budget is directed to advertising and other promotional activities. Most of the benefits of tourism accrue to the tourism operators. There is no clear reason why significant funding should be provided to tourism above other Australian export industries. The States already provide a marketing budget for tourism. However, it is arguable that marketing Australia as a destination for international tourists should be undertaken at a Commonwealth level rather than on a State-by-State level.
'Tourism Quality' grants Provides grant funding for tourism operators, or funding to improve tourism infrastructure Abolish Most of the benefits of these grants accrue to the tourism operators with few spillover benefits. To the extent that there is any government role in supporting tourism (such as the provision of multi-user infrastructure which would also support the local tourism sector) this role is already, and appropriately, filled by the State governments.

Source: National Commission of Audit

References

Austrade 2012, Annual Report 2011-12, Canberra.

Austrade 2014, Export Pricing and Quotations, viewed January 2014, <http://www.austrade.gov.au/Export/About-Exporting/Export-pricing>.

Australian Government 1996, National Commission of Audit Report, Australian Government, Canberra.

Australian Government 2010, Australia’s Future Tax System Review, (Henry Tax Review), Australian Government, Canberra.

Banks, G 2012, Productivity Policies: The ‘To Do’ List, address to the Economic and Social Outlook Conference, Securing the Future, Melbourne, 1 November 2012.

Department of Foreign Affairs and Trade 2008, Winning in World Markets - Meeting the Competitive Challenge of the New Global Economy, Canberra.

Department of Industry, Innovation, Science, Research and Tertiary Education 2012, Key Facts Australian Industry 2011-12, Canberra.

Productivity Commission 2002, Review of Automotive Assistance, Report no. 25, Canberra

Productivity Commission 2005, Assistance to Tourism: Exploratory Estimates, Canberra.

Productivity Commission 2009, Trade and Assistance Review 2007-08, Canberra.

Productivity Commission 2010, Australia’s Anti-dumping and Countervailing System, Report no. 48, Canberra.

Productivity Commission 2011, Carbon Emission Policies in Key Economies, Research Report, Canberra.

Productivity Commission 2012, Australia’s Export Credit Arrangements, Report no. 58, Canberra.

Productivity Commission 2013a, Trade and Assistance Review 2011-12,Annual Report Series, Canberra.

Productivity Commission 2013b, Australia’s Automotive Manufacturing Industry, Preliminary findings report, Canberra.

Productivity Commission 2014, Tasmanian Shipping and Freight, Draft Inquiry Report, Canberra.